Bernie "Madoff" with other people's money

The lead article in the Journal on Saturday, May 1, concerned investing West Warwick pension money and whether or not the pension board made a prudent decision. "The local unions whose pensions are a stake are taking a wait-and-see attitude".

Don't we get it yet? Investments are gambles. It's risky business. If you bet your pension money on a horse race and won would that make it a good decision? Come on people. These are gambles and it's the the risks not the outcomes that must determine whether the decision was appropriate or not, especially when you are responsible for other people's money to be available for their pensions.

Thinking out Loud

If we increase taxes somewhat on the wealthy they will cease working hard, produce less and the tax revenues will decline. This assumes that the wealthy, the successful, will change into low achievers and stop trying if they earn less.

That's as simple minded as the assumption that bestowing benefits on the poor will change them into entrepreneurs and high achievers.

We can't change the nature of people simply with money incentives alone.

"I'm shocked, shocked to find that gambling is going on in here!"

Just read an interesting piece in the NYT about the Goldman Sachs debacle. In it the author says: "Many more people now know that synthetic C.D.O.’s are a simple wager." Well, duh.

I'm reminded of the famous line in the Casablanca when Claude Rains feigns shock that there is gambling going on.

Capitalism has become so enmeshed and dependent on Wall Street that it risks transformation from a model of providing quality goods and honest services to a model based on simple (or not so simple) gambling. And sometimes the dice are even loaded.

Maybe it's just me.

It's a Choice

Theodore Gatchell's article in the Providence Journal on health care reform made several legitimate points that highlight the choices between the conservative right and the liberal left.

"Over time, however, rules become a way of shielding bureaucrats from having to use judgment. For every problem that arises, the answer is a new regulation."

Indeed. Who can deny the truth of this statement? The income tax code is a perfect example of government's infinite ability to complicate our lives. Of course it isn't only conservatives who pass these laws although one could get that impression from the article.

"More rules inevitably require more bureaucrats to interpret them with an attendant higher cost. If you think health care is complicated now, wait until the bureaucrats begin to crank out the reams of regulations that are certain to come."

Again, there is much truth in this statement which also serves as a mantra for those who resist and object to all governmental involvement not specifically mentioned in the Constitution. Tea Baggers?

It appears that the conservative right believes best arbiter of what's right and wrong is the free market and when bureaucrats interfere there results inevitably inefficiency, waste, corruption and a disregard for the Constitution.

Again, much is true.

When we consider which beer, which movie, which sneaker shall succeed in the market place, the free market is probably best left alone. The public should be allowed to make free choices in a free market to determine winners and losers in such contests.

If all decisions were only so trivial, so superficial. But they're not. In the process of free market competition the corporate bottom line dominates the decisions made by business executives and without government intrusion, important data may be hidden as people choose among things much more important than which oven cleaner, which detergent, which hairspray shall win out.

Was it the free market that publicized the link between lead based paints and brain damage? the link between tobacco smoke and lung cancer? the link between saturated fats and heart disease? Would corporations competing in free markets print this information on its products unless required by government?

Or is it more likely that millions of people would have to become ill or die before people could make informed choices in an unregulated free market?

The struggle between the right and the left seems to boil down to this:

Is it worth the cost in human sacrifice to respect the sanctity of privacy and let people, unfettered by intrusive and inefficient government rules and regulations, use their free market choices to provide the best ultimate decisions for themselves?

Or should we accept the inefficient, intrusive and expensive government bureaucracy to protect the public from harm that could otherwise result from a private sector where the fundamental obligation is to its executives and stockholders?

It seems that the right favors the first and the left favors the second.

Maybe it just me.

Property Tax POLL

I'd like to poll the sentiment of property owners and others regarding property values and fair tax bills. Perhaps ask some friends to read this too.

1. Assume your town has managed to freeze the tax levy indefinitely.
2. Assume your tax assessment is accurate.

The next year, after revaluation, your tax bill increased by 62%.

Question: Do you feel your higher tax bill is proper and fair? yes no

You can email your answer or just post a comment.

Thanks.

Take Your Pick

Rhode Islanders pay among the highest property taxes in the country and our per pupil education spending is even higher nationally.

We have been obsessing about lowering spending and it's easy to see why. But I pose this question:

Should we lower education spending to match student performance

or

should we improve student performance to match education spending?

If our students were #1 nationally, our education spending would look like a bargain.

The Public Option Question

If our nation will fail without an educated population can the same not be said about a healthy population?

Shouldn't it therefore be a public obligation to provide for both?

Can We Talk?

At a recent meeting with the Chief of the Rhode Island Division of Municipal Finance, to propose an idea for changing from a market value base property tax to a 'taxable' value based property tax, I was presented with some of the very serious issues facing the state and its municipalities, in effect challenging whether the proposed change would help the property tax problem.

Some of those issues were, (1) the large increase in foreclosures, (2) those who simply find it increasingly difficult to make their skyrocketing tax payments, and (3) the concern that the proposal would mean people might be living in identical homes paying different property taxes.

Each of these deserves an answer.

1. Foreclosure occurs when the owner of a property can't meet his/her mortgage payments. Those mortgage payments are established at the time the mortgage is created and is simply a loan using the property as collateral. The borrower and lender (bank) choose a mortgage that will satisfy the borrower's ability to make the payments.

There are things than can change the ability to make payments; job loss, unexpected medical bills, either of which could reduce one's ability to make mortgage payments. The actual market value of the property has little to do with the mortgage as described, unless...

There are other situations however, when the owner of a home that has appreciated in value is tempted by a lender to take out a second mortgage to finance say, a vacation or a new car. The increased value is treated as if it were like money in the bank and, if necessary, the owner can sell for the higher value and pay off the loans, maybe with some money left over. Tempting. As unscrupulous salespeople urged buyers to take out these loans these mortgages proliferated like crabgrass in August, producing enormous profits for the people who pushed paper from one place to another.

Too often the "free money" added to monthly payments more than the owner's ability to meet obligations. Add in increased property taxes based on the higher market values and we have the makings of a serious problem: people began selling their homes to reduce monthly payments. The increase in selling forced down market prices as more people began to panic. They to tried selling their homes quickly to grab those 'high' market values, only to find they weren't there. Their homes in some cases weren't even worth what they paid for them and many were forced to declare bankruptcy.

This downward spiral only increased the disaster that was beginning to unfold as the banks holding those mortgages found themselves with worthless paper (toxic assets) and their incomes fell as more and more people defaulted on their loans.

And yet the market values of homes are assumed to be the best and fairest metric upon which to tax people to pay for municipal services. Incredible.

The RIGHT proposal of using 'taxable' values instead of market values will not immediately fix the above problems. Of course, neither will the continued reliance on market values. But going forward one must consider if we will be in a better place if we make the transition to a taxable value based system or if we continue using market values.

2. This brings us to the individual who is simply struggling to pay taxes on an increased property value. With the expected drop in values one might expect some tax relief, but this is anything but certain. If values drop town wide, as they have recently, the tax rate will simply rise to produce the needed revenue. In fact revaluation to market prices produces thousands of people whose taxes drop as those whose taxes are too high, regardless of the overall increase or decrease in property values. It's the nature of swings in market values.

The more important question is this: Would we be in this position at all if we were taxed on 'taxable' values for the last twenty years instead of market values? It would be much better to pay taxes limited to 4% increases for the next twenty years rather than continue with the market based system which brought on current problem in the first place. It seems we have an opportunity to rewrite history: today is the future's past.

3. Now for the last concern, that under a taxable value based system there would be people living in houses of equal value, possibly side by side, paying different taxes. Quite true. For many it is hard to accept and seems unfair.

Consider. If Bill and Joe buy property at the same time for the same price, they should pay equal taxes.

But what if Bill sells his house to Nate for a much higher price than he and Joe originally paid? Should Nate simply pay the taxes that Bill was paying? Of course not. Nate should be taxed based on what he paid, just as Bill and Joe were, and to make sure Nate pays a fair tax on his market value we must use a rate calculated from the market value of the entire town.

But now he and Joe will not be paying the same taxes would they? Nothing wrong with that. But our reevaluation system insists that everyone be reassessed to market values. If Joe's property increased in value the same as Nate's, Joe will pay the same tax as Nate. The reassessment has decided that Joe is in fact the same as Nate, but he is not. Assessing someone's property greater than (or less than) the one he bought, doesn't make him equivalent to the person who just spent that amount.

The use of 'taxable' values instead, would increase the value of Joe's house and every other current owner, the same percentage as the tax levy, not the market place. For example, a 3% tax increase would increase everyone's tax bill by approximately 3% while new owners would pay based on market value. Both owners are treated fairly. The following year the new owner becomes an existing owner.

There is nothing inherently unfair about people in similar homes paying different taxes to support government; we do it all the time. We pay for state government and federal government differently despite living in similar homes and there is nothing immoral or unfair about doing the same for local government.

Is the proposed system perfect? No. Will it be better and more just for everyone? Absolutely. Check the RIGHTTAX website for more.

Organizing some thoughts

Conservative view:

• The free market is the best, most efficient way to allocate resources. The best ideas succeed, others fail. The best people succeed, others fail. Government should stay out of the way and let markets work because they have produced the most successful and powerful nation in history.
• The government has no business deciding how my earned money should be allocated. Politicians pretend to be concerned about the people but they act in their own self interest - to get reelected is their highest priority.

Liberal view:

• People are neither commodities nor resources and should not be treated as such by market forces, which will neglect (even abandon) the weakest among us. Governments are necessary to insure the welfare of those who might not have the resources or ability to succeed.
• If social decisions are left to individuals, the least productive, least powerful face neglect. Government must make these decisions and allocate resources to protect the weakest.

I see truth in each position. Will a battle for dominance of one philosophy over the other result in the best outcome? I don't think so.

Free Speech

I too, strongly support the First Amendment but Ed Achorn's Commentary, Feb 2, 2010, on the recent Supreme Court's First Amendment decision seemed to me to miss the real point of the controversy. The question before the court was whether corporations enjoy the same protections of the First Amendment as people. In other words, are corporations the same as people? The court decided yes in the case of First Amendment protections.

However, can a corporation be subjected to the death penalty? Can a corporation even go to jail?

I submit that corporations are not the same as people and therefor are not automatically conferred with all of the same rights and protections as people by the US Constitution.

These differences needed to be considered when applying Constitutional protections to corporations and I believe that the Court was wrong in its recent decision.